In 1789, Benjamin Franklin was quoted, “in this world nothing can be said to be certain, except death and taxes.” However, many companies and individuals managed to elude paying taxes before their secrets were leaked in the Paradise Papers. Like many offshore firms, Appleby had offices in the Channel Islands and the Isle of Man, which constitute the Crown Dependencies (CDs) of the United Kingdom. Unlike renowned tax havens in the Caribbean, these islands are less than an hour from the mainland.
The problem faced here is the confusion between tax avoidance and tax evasion. The CDs do not want to be known for tolerating bad practice but due to the secrecy Jersey is able to provide: in trusts, offshore companies and foundations, it has now gained this reputation. The combination of judicial segregation from the UK and an effective safe space will inevitably lead to abuse of the system.
Mark Davies is clear about the appeal of the CDs,”they are popular because they are high regulated, so investors have some confidence that their investment is safe.” He highlights the attraction of sophisticated local banks, experienced staff who understand UK laws and processes and a market place to invest onshore through an offshore structure, without attracting another layer of taxation.
It seems that CDs are determined to rid themselves of the easy-going and ‘blind-eye’ reputation by being super compliant, in particular with their relationship with the EU. While Jersey is not a member of the EU, they are directly affected by the tax rules and Jersey has proposed their engagement as a good and cooperative neighbour. (In light of the recent revelations, it is currently being examined by the EU’s Code of Conduct Group).
Bringing CDs under the international tax reform initiatives has been successful so far, increasing the transparency of tax affairs based in CDs – even if this information is not freely available to journalists and the general public.
However, why this information is not freely available fuels suspicions and it is this culture of distrust that is the biggest threat to CDs.